TraderJoe’s Modular Staking is a new Model in the Curve Wars
Why are DEX tokens valuable? They are valuable because they have utility, and their utility is of course tied to the activity and functions on the DEX. Utility is best accrued to a token by stuffing as much use-cases as you can into the token, but the Curve Wars have taught us that people want modularity in DEX token for their peace of mind and yield calculation. Failure to modularise means parasites will accrue that value that should have been yours. TraderJoe has rejected to be the rock where barnacles grow - well, not a lot of barnacles.
Value Accrual of DEX tokens
Why are DEX tokens valuable? Aside from serving as the middle token for trades of arcane tokens (think a ETH-to-SHITCOIN trade, it’d be very difficult to motivate a ETH-SHITCOIN liquidity pool), just by the architecture of a DEX, there’s not much value accrual to the token.
The usual trick is to set up some staking mechanism which entitles stakers to trading fees, higher LP rewards, or something of that sort. But these are just incentives to prevent people from dumping the token. In fact, the token does not accrue value through such mechanisms.
Value accrual happens when there is utility - we all know that. And governance, is one of those textbook utilities.
The advent of the Curve Wars has ended the era in which “governance” is just a codeword for “we don’t have any utility”. In fact the Curve Wars thus far have taught us several things: (1) votes have their prices; (2) people will build protocols to price them even if you won’t; (3) people want to value the price of a vote in a governance token independently of its yield-generation.
In short, people want their DEX tokens to be modular in their function, and they want to price those functions independently.
This is exactly what TraderJoe is doing.
Revamped Tokenomics
xJOE will be deprecated. To stand in its stead would be three new tokens, rJOE, sJOE, and veJOE.
rJOE - stake to gain access to Rocket Joe launches - not transferable
sJOE - stake JOe to earn platform revenue
veJOE - stake to earn JOE yield in select farms as well as future governance voting power. Not transferable
In the rest of this little essay, I will focus on rJOE. sJOE appears to be quite vanilla. Nothing funny there. veJOE seems to be entirely analogous to Curve, and the usual analysis with ve-tokens could be applied here, as well as predictions about Convex-like meta-protocols built on top.
rJOE, the token necessary for one to participate in Rocket Joe, a launchpad for what I would call initial LP offering (ILPO), is an innovation. It achieves protocol-owned liquidity for the project, but not with an Ohm mechanism.
What is Rocket Joe? It is a type of “launchpad” where:
Participating users can earn issuing protocol tokens through a fair market price discovery mechanism.
Participating protocols can use rocket joe to acquire protocol owned liquidity
Protocols launching from rocket joe will be able to raise a larger pool of liquidity, based on consumer demand for the issuing protocol token.
With a larger pool of liquidity being raised, this will discourage front-running bots, easing volitiatility and providing a favourable trading experience. Users and the protocol launching, both benefit here.
Rocket Joe is a complementary primitive, designed to run in concurrence with all existing avalanche launchpads.
Rocket Joe is sort of a launchpad that combines both IDO elements with Liquidity Provision. Suppose a token called ABC is launching on Rocket Joe, to bootstrap liquidity. Users stake their JOE into the rJOE staking pool and earn rJOE rewards. rJOE represents allocation credits for accessing a launchpad - i.e. tickets to a launch. Here, the launch is not an initial token offering of ABC, but the “initial offering” of the AVAX-ABC LP token.
This process also determines the price of the ABC token relative to AVAX. Suppose the Project ABC deposited 1mm tokens into the LP. Alice deposited 3000 AVAX, and Bob deposited 7000 AVAX. Together there’d be 1mm ABC tokens and 10,000 AVAX, which means the price of ABC is 0.01 AVAX/ABC. In other words, there are a total of 20,000 AVAX worth of money in the LP. Alice has deposited 3000 AVAX, so she is entitled to 3,000/20,000 = 15% of the LP tokens. By the same logic, the project ABC owns 1,000,000*0.01/20,000=50% of the LP tokens.
Note that the project ABC literally owns that 50% share of LP tokens. No liquidity renting there for the initial bootstrapping of liquidity. Nobody emitted JOE for the bootstrapping.
One should be careful in understanding the words “Protocol Owned Liquidity” here. It is true that this design does achieve protocol-owned-liquidity, as the protocol literally does own the liquidity. But it is not through an Olympus bonding mechanism. There is no rebase reward token comparable to Ohm here. Those who deposit their AVAX just literally get the LP tokens, and that’s it. Given there is no bonding here, Alice and Bob can just convert the ABC-AVAX LP tokens back to ABC and AVAX and proceed to dump the ABC. They can, but they might not, since this LP-token purchase mechanism is IDO-like in the sense that participation entails you’re one of the first people to get your hands on the token. Furthermore, if the LP tokens are locked in the same schedule as IDO-tokens, the IDO-likeness is further accentuated.
This is why rJOE, and therefore JOE, would be in demand.
“Think CEX listing, but on a DEX” as they say.
Curve War anticipation on Rocket Joe
Why did the Curve Wars happen? Why did Convex and Votium come into being? Yes, governance was a reason, the long staking period is a reason, but it is also because the CRV token was a token with multiple functionalities bundled together.
Convex has captured value by (1) allowing people to participate in governance more efficiently, (2) reducing the long staking period, and (3) separating (modularising) the functions of the CRV token. Value was captured because people wanted (demanded) this. And value so captured by Convex must mean value that would have been captured by Curve was left uncaptured. Convex has picked up the dead chickens and made a feast for themselves.
I remember reading someone on Crypto Twitter saying “I hate the tokenomics design of Curve. They should have done it right the first time.” He hates the tokenomics design of Curve because value that should have gone to CRV is now not there.
TraderJoe appears to have prevented this by modularising themselves.
This does not entirely preclude of meta-protocols like Convex building on top of veJOE though. Anything that user does not like but can be modified via a smart contract is an opportunity for a meta-protocol to build and provide a service for, and clearly, nobody likes the fact that like Platypus Finance, one can unstake JOE at any time but at the cost losing all accrued veJOE. Sure, veJOE is non-transferable, but it is just a matter of time of somebody tokenising wallets to target the staked veJOE. We already have people talking about it here for Platypus.
The key difference though, as far as I can see, such a TraderJoe-Convex, would only be capturing the value capturable by modifying the rules of staking into more palatable terms. The separation of yield from governance, is already achieved on the TraderJoe platform itself. That value still accrues to JOE.
Note that rJOE tokens will not be transferable on the open market just like veJOE. This suggests there could be enough incentives for a Convex for rJOE to be built on top. If Convex was built on top of Curve to fulfil the demand of getting around the 4 year staking limit, surely some meta-protocol could be built on top of TraderJoe to fulfil the demand of getting around this non-transferability of rJOE tokens. But why would TraderJoe be incentivised to do this? If rJOE tokens were transferable (tradeable), people would just buy and sell rJOE tokens and not stake JOE to earn them. The value generated from Rocket Joe would accrue to rJOE and not to JOE. People will simply buy rJOE, stake before an initial LP offering on Rocket Joe, and then scuttle off when the thing’s offer - kind of like liquidity locusts. Removing the tradeability removes this problem, and allows the launchpad to grow.
